Q&A With Monika Freyman: 'This Market Will Continue To Evolve Quickly'
Ceres is launching a new Q&A series as part of its Clean Trillion campaign aimed at elevating clean energy investments globally by an additional $1 trillion a year in order to minimize damaging climate change impacts. The series will focus on investment thought leaders who are paving the way in this fast-growing space. Today’s interview is with Monika Freyman, director of Investor Initiatives, Ceres’ Water Program about the launch of a new ‘green’ standard for water bonds.
While the Clean Trillion has focused primarily on clean energy investing, there is also a pressing need for bigger investment in climate resilient water infrastructure.
Ceres: First, can you tell us what is a water-related green bond?
Monika Freyman: Green bonds generally are a tool for raising capital for projects that deliver environmental benefits. A water-related green bond specifically could finance sustainable water infrastructure projects that are resilient to climate change. For example a water-related bond could help water utilities build infrastructure (i.e. catchment and delivery systems) to cope with more extreme and unpredictable weather patterns, or help companies implement water efficiency measures.
Currently, there is an enormous supply and demand gap for financing water-related projects and infrastructure in the U.S.: $1 trillion dollars over the next 25 years, according to the American Water Works Association. So there is a big need to invest in water projects, but also ensure that these investments are sustainable and climate ready. Hundreds of water infrastructure projects and billions of dollars are at risk of being stranded or impaired due to water and climate related risks. Keith Schneider has an excellent article in Circle of Blue summarizing what’s at stake.
The key here is that water-related green bonds are used to finance projects that are adaptable and resilient to growing climate impacts we’re seeing, such as last week’s deadly flooding from Hurricane Matthew in North Carolina.
C: Why a certification standard for green bond water projects?
F: Nearly 10 percent of the green bonds issued to date are focused on water projects. So a standard that ensures these water projects are indeed credibly ‘green,’ using science-based criteria, is essential to promote the growth of this market. In addition to helping investors deploy capital more rapidly towards water infrastructure, it also raises awareness with issuers, whether corporations or municipalities, that this type of financing is available. I’d like to think the standard connects these various parties in a more a credible and scalable way.
In other words, certified green bonds for water provide assurance to investors that projects have undergone rigorous climate resilience planning and could potentially attract new financial flows to help fill the trillion dollar supply and demand gap.
C: Who created the standard?
F: The standard was created through a rigorous science based process led by the Climate Bonds Initiative in conjunction with the Alliance for Global Water Adaptation, (AGWA) CDP, Ceres and the World Resources Institute (WRI). The process involved dozens of global water experts working together for over a year and ultimately the standard had to be approved by CBI’s board.
C: Have you any seen any examples where a certified green bond has been issued successfully for water projects and can serve as a model for more activity?
F: The San Francisco Public Utility Commission is a noteworthy example of what we hope to see in the future. Proceeds from the $240 million Wastewater Revenue bond will fund sustainable stormwater management and wastewater projects. The research and analysis firm Sustainalytics provided third-party verification. The certification reassured investors that their money would go toward climate ready and resilient projects. That meant making sure that mechanisms such as climate readiness, planning and good water stewardship were in place.
Ceres and its consortium partners developed a Verifiers and Issuers Guide using the SF PUC’s bond as an example of how green bonds can be certified. We hope this guide will help smooth the way for other water utilities follow San Francisco’s lead.
C: What are the next steps?
We will be encouraging cities, utilities and companies to use the standard when they issue green bonds for water-related projects. Ceres and consortium partners will be educating potential issuers and investors on the benefits and ease of verification. In addition we are contributing to the development of a certification standard related to nature-based water projects, which will eventually be layered onto the existing standard.
We’d like to see more companies use the standard for water projects within their operations. We just saw Apple use a green bond recently to raise $1.5 billion to finance renewable energy. Corporations could also be using green bonds for water efficiency. That would be really great.
C: Are green bonds gaining momentum?
F: There is strong momentum and interest in green bond issuances generally. The market is growing rapidly, albeit from a nascent low base. About $100 billion of green bonds are expected to be issued this year, up from $40-odd billion last year. It’s still a fledgling market. It’s not out of the nest, yet. But it has the ability to scale very rapidly, once there’s more assurance and credibility in the market. I am optimistic that this market will continue to evolve quickly.